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Can I sell my house if I have an equity release plan?
If you’re looking for financial flexibility in later life, it’s important to ask ‘Can you sell your house if you have equity release?
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More and more people are choosing to release equity from their home to give themselves a cash boost as they near retirement. A recent study found almost one third (30 per cent) of over-55 homeowners with private pension savings were planning to release equity from their main home as part of their retirement income funding.
But many people still find themselves wondering whether this will give them the flexibility they need in later life if they decide to move. Here, we tell you if you can sell your house if you have taken out an equity release plan.
Can I sell my house if I have an equity release plan?
Selling your house can still be an option, even if you have taken out an equity release plan against the property. Many standard equity release schemes allow you to move your mortgage to a new property if you decide to sell your house, provided the lender approves the new property first.
However, if you want to move to a house that is significantly cheaper than your existing property, the lender might decide it is not willing to lend as much against it. In this situation, you may have to repay some of the mortgage early, potentially triggering early repayment charges.
Steve Wilkie, executive chairman of equity release specialist Responsible Life, says:
“The new property must meet current lending criteria. In reality, current lending criteria are quite flexible and would be explained to a customer at time of purchase. If you have any plans to move to an unusual property in later life, flag this to your adviser who will advise accordingly.”
There are some properties that equity release providers might not be able to accept if they can’t be easily sold in the open market when your plan finishes, for example retirement homes. Speaking with an adviser about your future plans will help them to recommend a plan that is right for you.
Can I rent out my house if I have equity release on it?
If you release equity from your home, you won’t then be able to rent it out to a tenant. Renting your home out and creating a tenancy would usually require you to move out, triggering the necessary repayment of your equity release plan.
You can rent out a room to a lodger after releasing equity, however there are specific rules and guidelines that lenders may require you to observe to prevent a lodger turning into a tenant. It is likely that you will have to seek the lender’s permission too. Speaking to an adviser about this would be the best way to answer your questions.
Buy-to-let property landlords may be able to release equity from their investment properties, but the lending options might be considerably limited. It’s best to speak with a fully qualified equity release adviser about your options before factoring anything into your plans.
What type of equity release plan should I look for?
Equity release products, such as a lifetime mortgage, enable you to release some of your home’s value. Interest on the sum you have released rolls up over time and is usually repaid – along with the sum itself – when you pass away or enter long-term residential care.
Homeowners in the UK unlocked £4.8bn worth of house wealth last year alone, according to industry trade body the Equity Release Council (ERC).
Products are becoming increasingly flexible, with a range of new features on the market. Some features that could be available include the facility to receive a regular monthly income from your property wealth (rather than receiving one lump sum), to make regular interest repayments during the life of the loan, and to allow downsizing so you can move in the future – penalty free – if you wish.
Downsizing protection for equity release
This option allows you to downsize and repay your equity release plan in full – either voluntarily or if the new property does not meet your lender’s criteria – without incurring any early repayment charges. Typically, this feature can be used after the first five years of the equity release loan.
“The downsizing protection features allow customers to downsize at a time that suits them, rather than being forced to by financial needs,” Mr Wilkie adds.
“We’ve seen customers come to us fully expecting to have to downsize, who are then pleasantly surprised to learn they can use some of their property wealth now and downsize for the rest later when they actually want to. Often this is led by the wider family’s needs. Having the room to accommodate a growing family for visits is helpful before ‘rightsizing’ later in retirement. With a lifetime mortgage, you’re more in control of the money you have in your property."
Get professional advice
It’s important to seek professional financial advice, as releasing equity can affect your entitlement to means-tested benefits and will reduce the value of your estate.
In addition, you should only ever deal with lenders approved by the Equity Release Council, as they must provide certain customer safeguards. One such safeguard is the no-negative-equity guarantee, which means you will never owe more than your property is worth.
The Telegraph Media Group Equity Release Service offers no-obligation consultations with a local equity release advice expert from Responsible Equity Release. They offer tailored advice based on your personal circumstances and can discuss whether equity release is right for you. Their advisers will only ever recommend products that meet the highest standards of customer protection, and if equity release isn’t right for you, they will tell you.
Try the free equity release calculator now and see how much tax-free cash you can release
Read more:
- Buying a second home
- How to calculate buying out your spouse’s share of the house
- Borrowing on a mortgage for home improvements?
Equity release is only available to homeowners that own a property within the United Kingdom.
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,690.
The above article was created for Telegraph Financial Solutions, a member of Telegraph Media Group Limited. For more information on Telegraph Financial Solutions, click here.
Information correct at date of publication.